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Explain labor arbitrage in simple terms

Labor arbitrage is the practice of companies outsourcing their labor to countries where wages are lower in order to save money. This allows companies to take advantage of lower labor costs in other countries while still benefiting from the higher productivity levels of workers in developed countries.

For example, a company based in the United States may decide to outsource its manufacturing operations to a factory in China, where labor costs are significantly lower. The company can then produce goods at a lower cost and sell them at a higher price in the US market, generating a higher profit margin.

Another example of labor arbitrage is a company in the UK outsourcing its customer service operations to a call center in India, where workers are paid much less than their counterparts in the UK. This allows the company to save money on labor costs while still providing high-quality customer service.

This page was last updated on January 3, 2023.